- European markets remain closed today, but CBOT has seen a return to work with sharply lower prices. It remains to be seen whether this continues in coming days.
- Without distractions from day to day markets and information, we have reflected on what may, or may not, be going on in our agri markets, and the distillation of thoughts (in no particular order) follows:
- Corn – there is a strong probability that the weather in the US mid-west will favour corn production as cool summer and normal moisture will result from the likely El Niño pattern. Prices above $5.00/bu look difficult to sustain. Today’s prices would suggest that 92 million acres of corn will be planted, weather permitting, and demand has eased from the times when $4.00/bu saw demand growth. It must be borne in mind that China, US and Brazil own most of the world’s corn. End stocks look like China – 72.2 million mt, US – 33.8 million mt and Brazil 11.9 million mt. The Brazilian crop is done and stored, China continues (for some reason) to stockpile and it is now all about US acres and growing conditions. Unless we see a weather disaster in the US, the clever money will be on $4.00/bu corn by the end of the summer.
- Soybeans – the outlook is similar to corn insofar as weather patterns suggest favourable conditions for the crop right now. Coupled with large growth in planted acres we look for increased stocks and a move away from the tight US stocks position which has driven recent price action. Both Brazil and Argentina have record output and we are right at the point where these stocks will hit the market (May/June) easing worries over tight US stocks. Key is the level of end stocks, Argentina – 29.6 million mt, Brazil – 19.0 million mt, China 13.7 million mt and US 3.6 million mt. These four own all the world’s soybeans! Argentina’s stock leaps off the page as a vast number as they have kept tonnes from the market in a game of “chicken”, possibly driven by currency, economic and/or financial meltdown. When, and we do not say “if”, these stocks hit the world the current tightness (which has been bullish) will move to become significantly bearish. The single most bearish issue right now is the Argentine stockpile, sooner or later they will have to sell in order to raise cash.
- Added to the soybean scenario we have to consider the bumper Canadian canola (rapeseed) crop. There is a huge surplus exacerbated by their logistical difficulties caused by the cold winter conditions. Springtime and the inevitable thaw will permit these stocks to compete with soybeans (and meal) where substitution, and competition, will impact prices. The likelihood of $10.00/bu soybeans (or lower) unless we see severe weather issues within the US or Argentine hoarding of stocks seems the most realistic outcome right now.
- Wheat – right now we have a potentially critical situation, Ukraine. Some suggest that the “smart” money is betting on a cooling of the geopolitical situation and a withdrawal of the price premium which it has attracted in recent weeks. Historically, price rallies on geopolitical issues have proved good selling opportunities. Those who purchased crude oil on Middle Eastern spats or cocoa on Ivory Coast civil wars (of which there have been many) have generally lost money! The outlook for US wheat weather suggests improvement (right now) and potentially game changing and drought busting rains into May for winter wheat growing regions. If this is to materialise we could well be staring at significant downward price moves. Failure of rain to arrive could create the opposite effect and sharp price escalation. However, the odds right now suggest good rains and price correction to the downside.
- A further factor to keep in mind is the potential El Niño, which if it materialises, would negatively impact India’s production. The last significant El Niño saw India move away from its position as a major exporter to one of a major importer, mushing global prices higher. The swing from Indian exports of 5.6 million mt to importing 7.0 million mt saw close to 13 million mt removed from global supplies. That said, it is far too early to predict the Indian monsoon season right now. Bottom line, a price correction looks likely given rain chances in the US and likely easing of Ukraine tensions.